Sprint in $300 Million Tax Fraud Lawsuit

In order to offer better prices to customers, Sprint has allegedly under-collected and underpaid New York State sales taxes by $100 million. If the Attorney General’s allegations are true, Sprint could end up owing the state government as much as $300 million or more due to underpayment penalties. Sprint is denying the charges, claiming they’ve paid all taxes as legally required to do so.

The Attorney General, Eric Schneiderman, recognizes that if the suit is successful and Sprint must pay the penalty, it would be difficult for customers to escape the downstream effects. Just like any business, if Sprint is faced with an unplanned expense, they’ll need to come up with the difference elsewhere. That’s where customers who pay for services can help. Schneiderman says he wants the company, not the customers, to cover the cost of paying the back taxes.

That money is going to have to come from somewhere, however, and it’s not going to come from a reduction in executive salaries. While the Attorney General might have good intentions and companies should not be able to get away with deliberately and knowingly cheating on tax reporting, collection, and payment, I don’t see any way where the “company” can be penalized without hurting customers, shareholders, and employees.

Shareholders are already hurting; as of writing this article, the stock price is already down more than 4 percent. $300 million is a significant expense, even for a company that earned a revenue of $33.7 billion last year. The company actually didn’t profit on paper in 2011, and that certainly makes a $300 million fine sting more.

If a company over-collected and overpaid taxes, customers would be calling for refunds. A class action lawsuit would demand restitution. In this hypothetical situation as well as the actual lawsuit Sprint faces for underpayment, the set of customers is the unintentional third party of fraud. In both cases, the customer ends up suffering in the long run. Class action lawsuits barely benefit customers. The lawyers seem to do well, though.

In Sprint’s statement, the company claims they’re protecting their customers:

… [W]ith this lawsuit, the attorney-general’s office is claiming New York consumers, who already pay some of the highest wireless taxes in the country, should pay even more. We intend to stand up for New York consumers’ rights and fight this suit.

I find it hard to believe that any for-profit company has any interest in “standing up for consumers’ rights.” If Sprint doesn’t like the tax laws, they should do what all companies do: lobby for tax law changes that benefit them more. Of course, that wouldn’t work, because then Verizon Wireless and AT&T could also benefit from lower taxes. If the allegations are true, the company’s actions have nothing to do with Sprint’s defense of lower taxes for consumers. It’s about using any tactic possible, even illegal, to fight in a competitive market.

Are you a Sprint customer? If so, did you choose Sprint due to their lower monthly service fees? Would you remain a customer if the fees increased — a likely result of this lawsuit, whether successful or not?

I am not a Sprint customer but I came very close to buying stock in the company about two months ago. Despite the low price of the stock, I decided it was not a good idea. Now I am very glad that I thought twice!

I am a sprint customer and have been for YEARS. I chose them because of their low prices…I don’t think their service is particularly bad so I would probably stay even if the prices went up a bit.

Notwithstanding, doesn’t it seem odd that a publicly traded company just *forgot* to pay NY Taxes?! What about other states? What about the tens of auditors and CPAs that work for or with Sprint? Just seems odd

It’s quite odd indeed. So odd, that it’s more likely that the company weighed the risks of not paying the taxes against the benefit of gaining market advantages by maintaining an ability to undercut the competition on price.

It’s not entirely clear that the taxes are in fact owed. Certainly Sprint is publicly disputing the claim. It remains to be seen which way the courts rule on the issue.

Actually what is odd is that taxes usually aren’t included in the advertised cost. This is especially true sales taxes. But there are plenty of phone “taxes” which are technically imposed directly on the phone company, but which the phone company labels a tax and passes on to the consumer as a separate line item. This kind of unbundling, or some would say nickel and diming, is epidemic in the US marketplace. See also airline fares.

It doesn’t seem like Sprint would gain anything by not collecting and paying this tax. The only exception I can think of is if New York also has a law requiring that prices advertised be the total price including taxes and fees.

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About Luke Landes

Luke Landes founded Consumerism Commentary in 2003 and has been building online communities since 1990. Luke has contributed to PC World Magazine, US News, Forbes, and other publications. Read more about Luke and about Consumerism Commentary.

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